A District Court judge in Michigan has certified a class action in a Fair Debt Collection Practices Act lawsuit that accuses a collector of adding interest to any debt, regardless of whether the underlying contract stated it was allowed. The ruling follows earlier decisions in the case rejecting the collector’s attempt to justify the practice under Michigan law and denying a request to end the case at the pleadings stage.
The background: The lawsuit was filed after the plaintiff received a collection letter that included a line stating that the outstanding principal balance would accrue interest at a rate of 5% per year and that an “interest due” amount was included in the total balance.
- The plaintiff alleged that neither the lease agreement underlying the alleged debt nor any applicable law authorized the collector to impose interest before obtaining a court judgment.
- The complaint argued that presenting interest as owed misrepresented the character and amount of the debt and attempted to collect an amount not expressly authorized by the agreement or permitted by law, in violation of the FDCPA and Michigan law. According to the court record, the challenged language appeared in standardized form letters sent to thousands of Michigan consumers, which became the basis for seeking class treatment.
The ruling: In granting class certification, Judge F. Kay Behm of the District Court for the Eastern District of Michigan found that the legality of adding 5% interest through form collection letters presented a common question that could be resolved on a classwide basis.
- Judge Behm previously rejected the argument that Michigan law automatically permits collectors to impose interest where a contract is silent, explaining that the statute setting a maximum rate “is a consumer protection measure, not a blank check for collectors to add interest where none was agreed to.”
- The judge also noted that prejudgment interest is typically awarded by a court as part of a judgment, not imposed unilaterally in pre-litigation collection activity.
